Second tax season begins after slight pause

Remember the old joke? Teacher asks students, name the four seasons and they all answer, “Salt, pepper, mustard and catsup.”

The official tax season is over and after a few days “off” the second season begins for tax preparers. This is the time all of the corporations that were originally due in March are now being worked on with a new deadline of September. And of course those individuals who are extended to Oct. 15, will immediately follow.

The deadline of March 15 for corporations is a continuous problem as it only allows 75 days from calendar year end to file all the tax returns and other reports. This part of the problem is that January is the month in which all of the payroll data must be collected, balanced, sorted, and the payroll forms such as W-2’s prepared and filed with the IRS and the state(s) that you work in along with other year end documents by Jan. 31. In February, all of the Form 1099’s have to be issued to non-corporate vendors, subcontractors and others. So it really cuts down on the time available to get all of the other financial data together for March 15, commonly known as the Ides of March, but not for the same original reason. This is not to be a whine, but an explanation of the time restraints to meet this deadline.

To avoid this overload, some corporations elect a fiscal year as their accounting year. It still constitutes a 52-week year, but more often it coincides with their business cycle. And in reality it is a proper accounting of their business. Take a department store for example. They have large yearend Christmas sales and are flush with cash. But as we all know, there is quite an activity in January, when all of the returns are accounted for in addition to the annual markdowns. By ending their accounting year at the end of January, they will have their sales adjusted to a true figure. They will then have the required 75 days to file their corporate return. If they had to close their books at Dec. 31, they will pay a large income tax in March and will have to wait the entire next year to take advantage of the merchandise returns of January.

Other businesses such as landscapers or outside contractors also benefit from seasonal operations especially in parts of the country where there are severe weather problems. Another example would be those in the trucking business who are particularly vulnerable by ending on a calendar year end. Based on the inability to drive in the winter months and earn any income, and that some states require licensing in February or March, they will exhaust all of their cash by meeting these annual expenses along with payroll. By the time they begin to haul freight again and collect their receivables, which might be up to 60 days or more, they will start to fall back on their IRS and State employment obligations. So by allowing this business to maintain their books on a fiscal year basis, the company is able to report the income and expenses on a more equitable basis and spread the workflow more uniformly. The choice to be a calendar year or fiscal year entity is a decision made when starting a business. Being a sole proprietor, a partnership, LLC or an “S” Corporation precludes you from choosing a fiscal year accounting cycle.

Observation: Being defeated is often only a temporary condition. Giving up is what makes it permanent.

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